We would all enjoy eating sausages a bit less, so the story goes, if we could see what goes into them.
Well, you’d probably feel the same way about pension regulation if you could see how much it is costing your retirement.
Billions of pounds a year are drained from our pensions by an alphabet soup of regulators and their rule books, with precious little in the way of consent, coherence or transparency. The costs are met by the pension companies but in the end it is us, the customers, who pay for everything.
For example, for purely historical reasons we actually have two different regulators, both overseeing virtually identical bits of our pension system. They have their own separate rule books, lawyers, accountants, HR departments, ESG policies, office premises and so on.
They both regulate defined contribution pension schemes; sometimes they regulate the same schemes at the same time. The only reason they both still exist as separate entities is because no one in authority has an incentive to stop any of this profligacy.
The regulators themselves are certainly not about to call time on their gravy train. Civil servants too aren’t about to rock the boat. Government ministers are rarely aware of the scale and detail of what goes on and anyway they generally have more pressing issues demanding their time. Meanwhile the customer pays for it all.
Then there’s the statutory reporting requirements placed on pension schemes — the mandatory annual chairman’s statement or governance committee report. These documents are designed to be read by members and show investment performance, charges and whether the scheme is good value for money.
The reports are detailed, complex, run to dozens of pages, cost thousands of pounds to produce and are read by absolutely no one. Schemes also have to produce statements of investment principles; no one reads them.
They have to produce implementation statements detailing how they have performed relative to their principles; no one reads them. Asset managers have to make climate-related financial disclosures and coming soon is a task force on nature-related financial disclosures. I could go on and on. The reporting requirements do, even though no one is reading them.
On pension transfers there are whole industry working groups whose sole purpose is to collectively manage their way around the implementation of the bureaucratic rules imposed to restrict people’s access to their own savings.
Just one meeting with, say, 20 professionals in a room for a day can cost another £10,000. There are thousands of such meetings going on all the time across the industry and the customer pays for all of it.
To be clear, I’m not against pension regulation. Financial companies aren’t to be trusted but the regulation of them should be limited, proportionate, transparent and subject to regular auditing.
A pensions commission has been tasked with reviewing the adequacy of our pensions but bizarrely the terms of reference say nothing about the way the pension system is regulated. This is a missed opportunity.
This article originally appeared in the Times
Here’s a stat as to why it takes more than 10 years to build a grid upgrade: « there are more people in the various quangos regulating the national grid, than there are actually running the UK grid « It is a systemic failure across the UK, stifling progress, innovation even at the government’s instigation ( such as Pension SuperFund ). Even if new business models wade through the treacle, the fear of breaching some rule or another holds back the implementation.
Well done Tom for bringing this to a wider attention.
The cost of regulation topic was picked up by Pensions UK in a trustee focus group at their recent conference and I believe they are now considering an evidence gathering survey on the costs of regulation met by pension scheme members and sponsors.
The TPR was set up to protect the PPF. Now after 20 years that objective has fallen away with arguably the present surpluses in the PFF viewed as a result of over enthusiastic regulation. The remaining and much diminished universe of DB pension schemes falls into two categories. The larger schemes and those open to accrual as well as those who have or are preparing for buy-in / buy-out, for whom any regulatory intervention may be counter-productive (consider the USS a few years ago and the DB Funding Code at present). The second category, and that which TPR particularly uses to justify its existence, is the smaller closed scheme which the employer wishes to “run-out” at minimum cost. These schemes have been in existence in this state for now over 20 years and it is doubtful any active regulatory intervention will change behaviour. The route for members who consider they are not receiving the benefits to which they are entitled is via the Pensions Ombudsman (now being confirmed as a Court by the Pensions Schemes Bill) with employer failure still being dealt with by the PPF at minimal cost.
I am not sure why TPR has any role in DC. As noted above payment of correct contributions on an individual basis starts with the Pensions Ombudsman. Why should there be a different regulatory framework when those contributions are paid into a mastertrust as opposed to a fully commercial provider? Arguably, it should be the commercial providers, with or without trustee intervention however toothless that is, that should be subjected to the more rigorous intervention to protect savers.
Beyond these areas, what is the benefit of TPR extending its risk dominated regulatory approach to investment consultants and administration providers? Is the resulting increase in bureaucracy likely to improve outcomes for Members or reduce costs?
That leaves the role of trustees. When I first became involved with trustee boards in the 1980s the mantra was that trustees were there to challenge their advisors and not to let them run the scheme, We had mandatory member nominated representatives and the expectation was that most trustees would bring skills outside of pensions to the role. Do we gain from Trustee Boards being encouraged by the Regulator to be dominated by “pension professionals”, especially those whose training, instincts, and outlook condition them to think purely in terms of risk, and reinforced by a Regulator whose role has been defined in terms of risk.
I agree with Robin Ellison that the time has come for a rethink!